In December 2005, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No. 103, Audit Documentation. This SAS is effective for audits of financial statements for periods ending on or after December 15, 2006.
How the Standard Will Affect Your EBP Audits
In the past, standards permitted auditors to rely on means other than documentation to support their audit opinions. However, SAS No. 103 requires that documentation be sufficiently detailed to give experienced auditors who were not previously involved in the audit a clear understanding of the work performed, the evidence obtained, and the conclusions reached. As such, auditors who in the past relied on oral explanations to support certain parts of their work will no longer be able to do so. The new standard clarifies that oral explanations do not, by themselves, provide sufficient support for the auditor's work.
While the requirements of what should be documented are not all new in SAS No. 103, there are many areas where new or enhanced documentation is required. For example, the auditor now is required to document the discussion of significant findings or issues with management or others, including response; audit evidence that is contradictory or inconsistent with final conclusions, and how the auditor addressed the contradiction or inconsistency; proposed journal entries that could, either individually or in the aggregate have a material effect on the financial statements; and justification for any departure from a presumptively mandatory requirement. In addition, the statement requires enhanced documentation of identifying characteristics of items tested; and that abstracts or copies of the plan's records be included as part of the audit documentation.
SAS No. 103 also provides new guidance for determining the date of the auditor's report, which may be very different from your firm's current practice. In the past, standards dictated that audit reports were to be dated as of the date of completion of fieldwork. Often, auditors leave the field and finalize the financial statements, clear open items, prepare memos, and tie up loose ends at a later date in the office. SAS No. 103 states that auditors should not date their reports until they have sufficient, appropriate evidence to support the opinion. This means that documentation should have been reviewed, financial statements should have been prepared, and a management representation letter should have been signed by the client.
Resources
The Center and the AICPA have taken a number of steps to compile and develop resources to assist auditors in implementing these new standards. Those resources can be accessed through the following links:
SAS No. 103 - Audit Documentation
Practice Alert 2007-1, Dating of the Auditor’s Report and Related Practical Guidance
This document addresses significant requirements of SAS No. 103, including important dates to remember, audit evidence, and documentation review. Learn More>>
Advancing the Audit Documentation Standard. This article published in the June 2006 Journal of Accountancy provides a discussion of the reason for the new standard, a summary of the changes required by the new standard, and tips for auditors in applying the new standard. Learn More>>
TPA 9100.06, The Effect of Obtaining the Management Representation Letter on Dating the Auditor's Report
This Technical Practice Aid addresses whether the auditor is required to have the signed management representation in hand as of the date of the auditor's report. Learn More>>
TPA 8350.01, Current Year Audit Documentation Contained in the Permanent File
This Technical Practice Aid addresses whether the provisions of SAS No. 103 with respect to documentation completion and retention apply to current year audit documentation maintained in the permanent file. Learn More>>
New Auditing Standards—EBPAQC Roundtable Discussion
The Center sponsored this roundtable discussion call on March 1, 2006. Hear Chuck Landes, Vice President—AICPA Professional Standards and Services, and members of the EBPAQC Executive Committee discuss SAS No. 103 and its implications to EBP audits. Learn More>>
SAS 103 and 112 Talking Points
This document outlines talking points to assist you in communicating the new requirements to your clients prior to commencing work to avoid confusion. Learn More>>